Rare Coins Scandal Rocks Ohio

Published July 1, 2005

Up to $13 million of rare coins owned by the Ohio Bureau of Workers’ Compensation have gone missing and a huge investment loss last year went unreported, shocking state lawmakers and prompting criminal investigations, a request for a U.S. Justice Department investigation, and calls for the governor’s resignation or recall.

Apparently no one outside the bureau knew about the investments in rare coins, an unheard-of investment for a public insurance fund. There is some dispute over whether anyone outside the bureau knew investments in a high-risk hedge fund lost $215 million last year.

Governor Expresses Outrage

Ohio’s Republican governor, Bob Taft, issued a statement June 8 in which he assured citizens “no injured worker in the State of Ohio will go without the insurance coverage that they are guaranteed through the Bureau of Workers’ Compensation.”

He added, “I continue to be outraged and disappointed by revelations of investment losses at the BWC, and it has become increasingly apparent that the bureau has not been able to handle its responsibility over its very large investment portfolio.”

The bureau invested $55 million with Thomas Noe, a politically connected coin dealer who ran the Bush-Cheney re-election campaign in northwest Ohio. The state plans to sue Noe and pursue criminal charges over the missing coins.

The estimated size of the coin losses has grown by leaps and bounds since April 3, when Toledo Blade reporters Mike Wilkinson and James Drew raised questions about $400,000 in missing coins and the bureau’s investment practices.

Officials Denied Losses State officials initially protested that the investments were safe and profitable.

“[The rare coins investment] is probably one of the better investments in our portfolio,” said Jim McLean, the bureau’s chief investment officer, for the Blade‘s April 3 report.

On May 26 Noe’s attorney admitted to state officials that his client could not account for between $10 million and $13 million of coins. According to the Blade, the workers’ compensation fund paid Noe more than $1 million last year for gains in the coins investment.

Less than two weeks after that revelation, the state confirmed investment losses of about $215 million in a hedge fund handled by MDL Capital Management, a Pittsburgh-based firm that has managed investments for public agencies and pension funds in several states.

The bureau learned of the losses in September 2004, according to the Blade, but they were not revealed until June 7, 2005, one day after Blade reporters asked about the hedge fund’s performance.

CFO Forced to Resign

Ohio Democrats have pounced on the revelations to blast Republicans, who control the governorship, the legislature, and most statewide offices. They are alleging a cover-up and note that when the bureau’s chief financial officer resigned last year, they were told it was for health reasons. But on June 8 the Blade reported the bureau’s interim administrator said he was forced to resign because of the hedge fund losses.

Some Republicans have joined the chorus of calls slamming the current administration. One of these is Secretary of State Kenneth Blackwell, who is running for the GOP nomination for governor next year. Blackwell has asked U.S. Attorney General Alberto Gonzales to investigate the missing coins and the bureau’s investment practices.

Insurance trade association spokesmen say they know of no other state insurance fund that has invested in items that are so volatile in price and so difficult to sell as rare coins.

“I have never heard of any investments in rare coins,” said Jeff Junkas, spokesman for the Midwest Region of the American Insurance Association. “This definitely seems to be a unique situation. They can’t exactly turn those coins over in a heartbeat and get their funds back. It sounds to me that this goes far beyond fund management. It sounds like something more nefarious is going on.”

System Not Imperiled

As for the $215 million in hedge fund losses, those are troubling–but not because they threaten the state’s workers’ compensation system, said Joe Savarise, director of communications and public affairs for the Professional Insurance Agents Association of Ohio.

“Our workers’ compensation system has a sizable surplus, so this doesn’t imperil the system,” he said. “The questions are over management and oversight. What we’re hearing is more about the relationships between who was doing what with the coins and money, about political contributions that could have influenced decisions that were made.”

Noe has long been known as a political contributor and friend to lawmakers. At the time of the Blade‘s initial news article, he was serving on the Ohio Board of Regents (appointed by former Gov. George Voinovich) and the Ohio Turnpike Commission (appointed by Taft). He has resigned both positions.

Others also have left state government over the revelations, including James Conrad, who resigned as administrator of Ohio’s Bureau of Workers’ Compensation at the end of May.

Newspaper Kept Digging

Luann Sharp, assistant managing editor of the Toledo Blade, said the public’s reaction to the newspaper’s initial report “was quite hostile. People were saying, ‘Why are you going after this guy? We think it’s personal. This is a vendetta.’ But we kept digging and digging and every day there was more and more to report.

“Now, two months later, the public might think we’re on to something,” Sharp said. “I don’t know this, but I just have a feeling there’s going to be more.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.